Last week, three Bendigo and Eaglehawk-based bakery owners said if their butter costs increased further they could be forced to up their retail prices.

So far, Country Cakes, the Flora Hill Bakehouse and the Eaglehawk Bakery had avoided passing costs onto customers.

All three were wearing additional costs. Some in the industry were replacing butter with margarine or changing suppliers in an effort to keep retail prices down.

Challenges holding retail prices steady

Flora Hill Bakehouse owner Rod Whittle said rising butter costs had made it tough on those trying to hold their prices steady.

In the last year, Mr Whittle had seen butter prices rise from $120 to $225 per 25kg box, while milk powder had gone from $115 to $146 a bag.

“Cream’s going up as well. Cheese has gone up … sour cream is going up too. It’s not going to stop just at butter,” Mr Whittle said.

He said his business was not the only one dealing with reduced profit margins.

“These suppliers, they aren’t making much out of it either. My guy with the butter is paying $221 for a box now, where he was paying under $200 not that long ago,” Mr Whittle said.

Mr Howe said wholesalers were often not in a position to absorb costs.

Some had been able to cover at least a portion of the rises seen in February and had banked on prices later receding.

However, their hopes were dashed after a sharp spike in May caused by product shortages.

Consumers unlikely to wear full costs of any price hikes

Mr Droppert said if prices were to rise again it was unlikely consumers would bear the full brunt. In the past year commodity prices for bulk butter had risen by about 60 per cent, while the retail price was about 40 per cent higher.

“So not all of that has been passed on to the retail level. It probably won’t all be passed on, but obviously, there’s some scope for it to rise a bit more,” he said.

“It’s subject to demand, as well. Retailers don’t want to raise the price too much or demand will fall away.”